F1 VIRGINIA PRODUCTIVITY CENTER

00_-

Mv

00The Study of

Productivity Measurement

I and Incentive Methodology(Phase III - Paper Test)

'*~4 Volume III

- MAR 2 51987

Virginia Polytechnic Institute

[ and State University- Blacksburg, Virginia 24061

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THIS DOCUMENT IS BEST QUALITY AVAILABLE. THE COPY

FURNISHED TO DTIC CONTAINED

A SIGNIFICANT NUMBER OF

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S

The Study of

Productivity Measurement

and Incentive Methodology

(Phase III - Paper Test)

Volume III

FINAL REPORT

March, 1986

Defense Supply Service - Washington

Contract MDA 903-85-C-0237

VIRGINIA PRODUCTIVITY CENTER

VPI & STATE UNIVERSITY -; -

Blacksburg, VA 24061

.. l- . . 4 . . . .. .. . . " . . .

" .tS

DISCLAIMER NOTICE

THIS DOCUMENT IS BEST QUALITYPRACTICABLE. THE COPY FURNISHEDTO DTIC CONTAINED A SIGNIFICANTNUMBER OF PAGES WHICH DO NOTREPRODUCE LEGIBLY.

I

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THE STUDY OFPRODUCTIVITY MEASUREMENT

ANDINCENTIVE METHODOLOGY(Phase III - Paper Test)

FINAL REPORT

14 March 1986

Contract MDA 903-85-C-0237Defense Supply Service - Washington --

Contract No. N00039-84-C-0346 DistVPI and State University I

Principal Investigator: . .lVirginia Productivity Center, UPI

D. Scott Sink, Ph.D., P.E. (Director)

Marvin H. Agee, Ph.D. (Co-Director) I" "'Chell A. Roberts (Research Associate) 'rpyMarty Simpson (Administrative Assistant) .. Eo

Subcontractors:

LTV Aerospace and DefenseVought Aero Products Division

Shoni Dhir, Manager Productivity RequirementsRay Thornton, Productivity Measurement StaffLen Thorpe, Manager Productivity Measurement

Price WaterhouseWilliam T. Muir, PrincipalEugene J. Klein, ManagerBetty B. Thayer, Senior Consultant

Westinghouse Electric CorporationDefense Group, Manufacturing Systems andTechnology Center

Richard L. Engwall, Manager Systems PlanningAnalysis, and Assurance

Maryland Center for Productivity andQuality of Working Life

University of MarylandThomas C. Tuttle, Director

,r *

L11 11 "4Nt11115 K C C111 , w

VOLUME III

3 TABLE OF CONTENTSPage

VIII. Final Report Briefing Presentations

A. Final Report Draft Presentations - ......... .698January 17, 1 6 -Ft. Belvoir, VA

1. Introductory Conments/ExecutiveSummary (VPC)

2. LTV/VAPD Integrated Approacha. LTV Presentationb. VPC Paper Test

3. CDEFa. Price Waterhouse Presentationb. LTV Paper Test

4. MFPMMa. VPC Presentationb. LTV Paper Test

5. DCF/SSAU a. Westinghouse Presentationb. LTV Paper Test

6. Summary Remarks/Conclusions andRecommendations (VPC)a. Summary Remarksb. Conclusions & Recommendations

B. Final Report Briefing Presentation -. ........ .813February 18, 1986, Pentagon, Washington, D.C.

Appendix A. Distribution List ...... ................. .. 814

.e(

VIII.A.1 -Introductory Comzments/Executive Summary

me

i@Pi

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iII

q41

4- ;..'

V44

698

o w '.@4 .

'-

IO 2FINAL AGENDA

FORFINAL PRESENTATION

17 January 1985Fort Belvoir, VA

0900 Introduction(s) Mr. David Acker (TCO)

0920 Introduction, Review Agenda, D. Scott Sink (PI)and Rxecutive Suary

Paper Tests:1000 LTV Integrated Approach S.Dbir

VPC Evaluation Sink

1200 LUNCH

1330 CDE?:Price Waterhouse Thayer/ClmeLTV/VAPD Dhir

1415 NFPIOE:VIC SInk/lobertsLTV/VAD Dhir/Thorpe

1500 BREK

1 515 DCF/LKI/WestinghouseWestinghouse Engvall/___LTV/VAPD Thorton/D-hrViC Agee

1600 Sumary/Conclusions/ Sink/Age.Recommenda tions

1615 Q&A's, Reco me ndationsfrom Advisory Board.Next Steps

1630 Adjourn

699

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TOLUEI ITABLE OF COMI Pa

I. zxecutive Sumiary . . . • . . . . • • • . . . . . . • •

II. background

A. Overall Project Goals . . • ....... • • . . . 12B. Phases I & II Results . . . . . . . . . . ..... 16C. Phase III Goals .............. . . 28D. Phases IV & V Goals ................ 30

Ill. Introduction Phase UIl Results ............ 36

IV. Field Site Description (Objective 7)

A. LTV/Vought Aero Products Division . . . o o . . . . 43Z. Typical Aerospace and Defense

Contractor/Subcontractor . . . . . . * .. . . 46C. Westinghouse Site Description . . . o o .*. . . . * 53

V. Approach and Result

A. General Approach . ........ • 0 . . 641. Description of Each Model .... . . . .o o . . 66

1. CDI?2. DCF/SSA3. NFPO4. LTV Integrated Approach

C. Applications of Each Model (Objective 5) • • • . 2541. CDEI2. DCP/SSA3. Krm

D. Comparison and lEvaluatiom Methodology(Objectives 3 A 6)

(Generic asd Modal Specific Criteria) . . . . . 2731. Generic Criteria2. Specific Criteria

1. Evaluation of Each Model a a ProductivityMeasurement and Incentives MethodologyModel . . . . . . •.. . .. 282

P. Evaluation of Combined Models Approach . . . . . . 293

VI. Recommendations and Conclusions(Objectives 1. 8, 9) 295

702

VOLUIR 1ITAILS O CONTENTS

VII. Detailed Analysis of Each Model (Objectives 2 | 4)(Paper Test) . . . . . . 308

A. CDIB. DC/SSAC. KPiBID. LTV Paper Test of Three Models

(Each Detailed Analysis Contais thefollowing Elements)

1. Purpose of the Model2. Applications - bow the model Is

intended/has been applied.3. Unit of Analysis for Model4. Input Data Requlreme-ts5. Output Data6. Operating Scenario - how It

functions, paper testmethodology

7. Resource Requirements - personhours, equIpment, software,expertise

8. Analysis of Model for Test Site9, Recomendations

E. Responses to Questions Raised in Paper Tests . . . 670

703

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Generic Productivity Management Methodologyas Related to Defense Industry

Corporate Strategic Plani STAGE I

* Disclosure Statement

* CDEF* MFPMH (LTV)

+

IFactory/Division/Proect Analysisi STAGE 2

Incentives 0 Developmental Plans0 Challenge Budgets (LTV)

* S Cost Driver Analysis (LTV)0 Top Down IDEF, Node Structure

Macro

+

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* Nominal Group Technique (LTV)* IDEF (CDEF)* ROM Potential Savings/ROI

+

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. Decision Analysis* NCP/PMT (LTV)* CRA

7o6

Figure 111-i (cant.)aGeneric Productivity Management Methodology 1

As Related to Defense Industry

ISources of Fundal STAGE 5

0 Man Tech 0 Budget & IR&D 0 IMIP 0 Profit

Various Return Analysis/Decision AnalysisTechniques Depending Upon

Audience/Funding (i.e. 1)11, CIA, Westinghouse, DCF)

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go IMIP)

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+

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Issue" Validation Is sues" CIT

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VIII.A.2 - LTV/VAPD Integrated Approach

a. LTV Presentation

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FIGURE 111-2Depiction of LTV/VAPD's Basic Approach

to Productivity Management

Project Cost-Benefit IM HP- Incentives Anal/Track. SS Negot.

(i.e. IMIP) Use the HJ I DCF ModelMCPMH

" - IIe ElII

Strategic Development Budgets Performance Profits

Plan Plan Prod. ___S (Productivity 0 Projects Targets HCPM

Targets)

- Mkt. ShareTargets

Learning Curves

Future Bids

Comments: * Process should be self-motivated* IMIP utilized to minimize lost profit impact

* If there were overall total productivity improvement" incentives the company would likely do what Government

is after anyway and with less difficulty than by wayof project focussed incentives.

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VIII.A.3 -CDEF

a. Price Waterhouse Presentation

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a. VPC Presentation

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R(2) SALES OUTPUT OUTPUT PICE

COSTS INPUT INPUT PRICE

(3) A Profit - A Productivity z A Price Recovery

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A Input Price(5) A Product Price or * A Prod. a

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FIGURE VII-C-lt Basic HPi Equationand its Derivation to Show lowthe Model is Utilized by LTV.

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VIII.6 - Summary Remarks/Conclusion andRecommendations

a. Summary Remarks

3-

1w

Table V.D.-l.-. Generic Criteria Useful inEvaluating Productivity Kanagement

Ms thodologes (PMGC)

P9GC 0 Does the methodology incorporate a 2-5 year strategicplanning process?

PHGC2 9 Does the planning process, by which the 2-5 year planis developed, substantively Involve all major,relevant, and appropriate key decisim makers in theorganization?

Pi4GC 3 * Does the methodology recognize the need for acompetent 'champion"?

P9GC4 * Does the methodology incorporate machanisiom formanaging change within a political and sociologicalculture?

PHGC5 0 Does the methodology ensure that productivity basicsare understood consistently by all persons in theorganizatLon?

PMC 6 0 Does the methodology consider and Incorporate aprocess by vhich general awareness about the vin-winfeatures of productivity improvement can be developed?

Does the methodology recognize that there are strongpressures/restralning forces Impeding productivityImprovement that must be forthrightly and openly dealtvith?

PM1C7 0 Does the methodology incoporate the notion of stagesof development or evolution for the productivityeffort?

PHGC 8 a Is there gemoules, real, long-lasting top managementsupport for the effort? Does the methodology providea mechanism for getting and keeping the support?

i)4GC9 0 Does the methodology adequately provide forintegration of specific models, techniques, and stepswLthia the methodology and a mechanism for Integratingthese with other management system?

Ir PWGlO 0 Does the methodology define how the productivitymanagement plan will integrate with the business plan,marketing plan, capital budgeting plan, lom-range(5-25 year) strategy plan, etc.?

PMGijl Does the metbodology utilize stats-of-the-artparticipative management techniques, at all levels ofmanagement, to drive productivity improvement plans?

792

P? . . . . . . .

Table Y.-).-.i. (coat.)

PMGC12 0 Does the ethodology specifically deal with boy to,4link strategic productivity Improvement planning to 0.action planning and effective Implementation?

PNGC 13 0 Does the methodology Incorporate mchanisims thatencourage and promote disciplined manaSement ofbudgets (all resources) at various levels ofmausgement and supervision?

PMGC 1 4 • Does the methodology Incorporate continuing andproactive development of improvement measurement andevaluatiom system? Does the methodology specificallyincoporate state-of-the-art productivity measurementand evaluation techniques?

PMGC15 0 Does the methodology strongly encourage periodicmeasurement and evaluation system audits that check toensure that those things vhich truly constitute systemperformance are masured?

PMGC1 6 • Does the methodology recognize the difference betweenmeasurement and evaluation systeme for controlpurposes versus those for development and improvementpurposes?

PtGC1 7 * Does the methodology discourage measuring A uhilehoping for B?

PKGCj8 • Does the methodology define how various masurement Xand evaluation systems will integrate Into a cohesive,effective management system that supports proactive --productivity management?

PMGC 1 9 • Does the methodology allow for personalized scoreboardbuilding by sections, work groups, departments, etc.?

PHGC2 0 • Does the methodology promote continuing, proactivedevelopment of control and improvement techniquesrelated to all resorces? Does the methodologyspecifically Incorporate state-of-the-art productivitycontrol and improvement approaches and techniques forlabor, capital, energy, materials, anddata/information?

PHGC 2 1 • Does the methodology encourage periodic audits ofcontrol and improvement procedures? Do we audit whatwe really reward?

PHGC 2 2 • Does the metbodolosy discourage rewarding A whilehoping for B?

793

Table V.-D.-l.-l. (coant.)

PMGC 2 3 * Does the methodology encourage and promote Innovationat all levels of the organization?

PHGC 2 4 * Does the methodology utilize a "cost-driver" analysisto identify vhere improvement efforts are beatdirected?

PHGC 2 5 0 Does the methodology defrin bow to successfully linkcontrol and improvement to measurement and evaluation,and vice versa?

PHGC26 9 Does the methodology focus on building effectivemanagement systems as opposed to just automating? Areour improvement efforts piecemeal attempts to optimizesubsystems at the expense of larger systemperformance?

MI'GC27 a Does the methodology strive to create goal-conguity/via-win situations? If the organization wins, willthe individual win also?

7 P PMGC28 0 Does the methodology successfully utilize

state-of-the-art participative management techniquesfor productivity improvement plan identification,developeet, and implementation?

(29 e Does the methodology focus on execution of managementbasics as as early stop in productivity Improvement?

PHGC3 0 * Does the methodology hold management, staff andeployees accountable in a disciplined, consistentgfashln?

PH"C 3 1 0 Does the methodology incopotate planning formaintaining excellence osnce it is achieved?

PHGC3 2 • Do all levels of management and staff understand themethodology? Does the methodology lceporte plans toinvolve management in its development and to continueeducation as to the methodologies execution?

P4GC3 3 0 Is the methodology designed so as to be self

motivating?

~' - PMGC 34 e Is the methodology as simple as possible?

794

Table V.-D.-I.-2. Generic Criteria Usefulin Evaluating Productivity Measurement

and Evaluation Models that viiialso Support Incentive methodology*

(PNE4 CC)

PMEMCl 0 Is the modal easy to use?- Ease of Application

PMEWGC 2 0 Ease of Application for Prime Contractors.0 Ease of Application for Subcopntractors.

PEMGC3a 0 Does model utilize existing company data bases?- Percent of data needed that is available.

PMEMGC3b 9 Does the model require developing new company databases? If needed data is not available, can model bemodified to provide valuable information?

- Nov data bases that must be developed to use model.

PMEIGC4a a What does the model measure? (directly & indirectly)- Effectiveness- Efficiency- Quality- Productivity- Quality of Work Life- Innovation- Profitability

PMEHGC4b a Is the model primarily designed fort:- cost/benefit, cash flow projection and analysis?- cost/beefit, cash flow tracking & validation?- productivity measurement A evaluation?- a control tool?- an isprovemeat tool?- a department, function, or workgroup analysis

tool?- a plant, division, or compsam analysis tool?- a project or program analysis tool?

PMEMGC 5 5 Model usefulness for Maaufacturing EfficiencyProjects? for Manufacturing lavestment Projects?

PMEC 6 0 Implementation Costs?- Seteral magnitude- design 4 development- implemantatio

*. - operation and maLtenea"

m. * Incentive Methodology in this application Infers Government toContractor Incentive System* such as IN4?.

795

7!.

Table V.-D.-le-2. (cost.)

Pi4HIGC7 • Ability to meaure and allocate savIngS to sultipleprogramt?

FKKMDC 8 • Ability to have productivity Improvement projects andbusiness program added and deleted? Flezibility ofmodel?

PHENGC9 * Ability to delineate comnercial and goverment programbesetits?

FKEMGC 10 a Quality of nodal output? Appropriateness of mdaloutput portrayal? Flexibility of output for variableaudiences?

PKEGC1 1 a Accessibility of necessary input data? Preprocessingof Input data required?

PHE4GC1 2 * Audtability of model?

PMIEGC 1 3 a Ability of model to handle long cycle times, multipleproducts, frequent design changes, product sixchanges?

PZNEGC 14 0 gase of translation and transfer of model withindefense Industry?

.F-KEC1 5 : Perceived complexity of model?

PHEMGC16 A Ability of modal to satisfy needs of sultiple users(i.e.. Congres DoD, contractor, rnsnaers, staff,etc.)?

PH C1 7 0 Uniqueness. and perceived utility of informationprovided by model?

PKEIC 8 a Perceived implementation cost?

F4EGCJ9 0 lace of lInksags and quality of the link between what46 the model macures and incentive methodology?

)M4DIC20 e Model's conformance to accepted coat ccountingproactices?

PEIGC2 1 0 Does the nodal follow functional (organizationalchart) analysis or a cost-structured approach?

PHEHGC2 2 9 Model's allowance for comparing and contrasting Isand As Vere" cost baselines vs. "To Se costbasellos?

796

Table V..l-.(cost-)

II,-I

:: .

PM4N4GC23 e Ability of model to incorporate uacertainty and risk?

EHI4D4GC2 4 Ability of model, us8g existing data, to trackproductivity Improvemnt?

PHMENC 2 5 • Ability of model to treat ulti-dimenaionality ofperforance and productivity, i.e., ability of modelto ezamine cost factors and non-economic factors?

PKEMGC2 6 a Ability of model to substantively involve mrs andpeople in the system in its development, evolution anduse?

PIEHGC2 7 • Ability of model to guide, direct, and even motivateV?. action and implementation?

PHEMGC2 8 s Ability of model to support decisions?

PMEGC29 • Ability of model to satisfy the goals of DoD andcontractors?

PHqEMGC30 0 Ability of model to be Integrated successfully intotypical defense industry management systeme?

V.7

4--V...

I-

'I 797 .-

V *.

D. Comparison and Evaluation Hethodology

2. Specific Criteria

5 CDEF: a) Has a functional structure been used?b) Have function groups been identified?

c) Rae the financial reporting structure been "mapped.against the functional structure?

d) Has a comprehensive Manufacturing Cost Nodel beenidentified,

e) Rave Critical Success Factors and the relatedperformance measures been identified?

f) Have "as is' and 'to bee cost baselines been

established?

g) Ras project risk bees onsidered?

h) Hae the synergistic impact of the technologyImprovemnts been considered?

1) Ras a benefits tracking plan been developed?

WIPK: Does the model:

a) provide &a overall, Integrated measure of productivityfor a plant, division, firm, etc.?

b) provide an analytical mechanism for evaluating pastperf ormance?

c) provide important Inforuation for budget control?

d) provide constant value information on performance?

e) assesa and evaluate bottom-lne impact on profits fromshifts in productivity and price-recovery?

,,t f) track results of specific productivity improvementInterventions or track total results of allproductivity improvement interventions?

) assist vith establishment of productivity menagementplanning?

798 ,"'*' 9*1I'

, ,I

h) provide In a succinct, integrated report containingInformation related to

- changes in resource utilisation andoutput compoeltion.

- traditional 'pie chart," cost driveranalysis data.

- partial factor, multi-factor, andtotal productivity ratio*.

- performance indexes, changes inproductivity, price-recovery andprofits from period to period.

- the constant-value dollar impact ofproductivity and prLce-recoverychanges on profits.

I) provide management team vLth the ability to forecastand simulate business conditions, cost patterns,productivity trends, and to analyze these changes(controlled, constrained or othervLse ) on overallperformance.

J) notivate more proactive productivity managementefforts on part of managemet teams.

k) reflect good management system design (i.e., considervho is managing and what is being managed in relationto vhat ve are managing vith).

1) promote total factor (energy, capital, labor.materials, data/Laformatlon) productivity managementdecston-making.

799

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VIII.A.6 -Summary Remarks/Conclusions andRecommenda tions

IZS b. Conclusions and Recommendations

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VIII.B. Final Report Briefing Materials

(Presented by VPC to Dr. John Mittino,Deputy Assistant, Secretary of Defense)

I.-

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*# - -. . .. . ' ' " " ."-" . . . .""""""""""' ", " ",* ' ; " ."; "

U: The Study. of

: . Pruductivity Measurementand

T1ncentive Methodology

Phase II

Final Report

Briefing

18 February 1986

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FIGURE IIil-IGeneric Productivity Management Methodology

as Related to Defense Industry

q Corporate Strategic Plani STAGE 1

* Disclosure Statement* CDEF* MFP),( (LTV)

J.. +

IFactory/Division/ProJect Analysial STAGE 2

Incentives * Developmental Plans" Challenge Budgets (LTV)" Cost Driver Analysis (LTV)* Top Down IDEF, Node Structure

Macro

41' denti-fication of Proj-ects STAGE 3MEP vs. MIP

o Nominal Group Technique (LTV)s, IDEF (CDEF)0 ROM Potential Savings/ROI

Selection of Projectsl STAGE 4

0 Decision Analysis0 MCP/PMT (LTV)* CBA

833

*•

Figure III-1 (cont.)Generic Productivity Management Methodology

As Related to Defense Industry

ISources of Funds STAGE 5

0 Man Tech 0 Budget S IR&D 0 IMIP 0 Profit

Various Return Analysis/Decision AnalysisTechniques Depending Upon

Audience/Funding (i.e. LMI, CIA, Westinghouse, DCF)

q4,' -,NO Different

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IIMPLEMENTATIONI STAGE 7

lCost-Benefit Trackingi STAGE 81 +Shared Savings Approach STAGE 9

Incentive I

* Rates and Factors Issues* Projects vs. Overall Improvement

IssueS Validation Issues* CBT

+

0 Improved Productivity STAGE 10/ Improved Competitiveness (OUTCOMES)

" / • Improved Performance // Reduced Costs; Improved /

Quality, Improved/

~Overall Acquisition

for Government

0834

b,.-

FIGURE 111-2Depiction of LTV/VAPD's Basic Approach

to Productivity Management

Project Cost-Benefit IMIPIncentives Anal/Track. SS Negot.(i.e. IMIP) Use the H DC Model

MCPMM ,

Strategic Development Budgets Performance Profits

Plan Plan Prod. ______ ____(Productivity 0 Projects Targets HCPMTargets )

0 Mkt. ShareTargets

Learning Curves-,

Future Bids

Comments: 0 Process should be self-motivated" IMIP utilized to minimize lost profit impact" If there were overall total productivity improvement

incentives the company would likely do what Government gis after anyway and with less difficulty than by wayof project focussed incentives.

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-- -- - ------ -IW 7

APPENDIX A

Distribution List

........

Distribution List

Volumes 1, I, 111:

Dr. Richard A. StimsonDirector, Industrial ProductivityOASD(A&L)IPRoom 2A318, The PentagonWashington, D.C. 20301

ComandanteDefense Systems Management CollegeAttention: DSMC-DRI-RBuilding 202Ft. Belvoir, Virginia 22060-5426

Dr. Robert F. WilliamsArmy Procurement Research Office

ODCS for LogisticsBuilding 12113Fort Lee, Virginia 23801

Mr. Shoni DhirManager, Productivity and Industrial

EngineeringLTV Aerospace and Defense CompanyVought Aero Products DivisionP.O. Box 225907Dallas, Texas 75265

Dr. Thomas C. Tuttle

DirectorThe Maryland Center for Productivity

and Quality of Working LifeUniversity of MarylandCollege Park, Maryland 20742

Mrs. Betty ThayerSenior ConsultantPrice Waterhouse6500 Rock Spring Drive

Bethesda, Maryland 20817

Mr. Richard Engwall

Manager, Systems Planning, Analysis

and AssuranceWestinghouse Manufacturing Systems

and Technology Center9200 Berger Road, MS 6112Columbia, Maryland 21045

81

81.4

Distribution List (cont.)

Volume I Only:

Mr. Douglas Reeves

Assistant to DirectorIndustrial Productivity

OASD(A&L)IPRoom 2A318, The PentagonWashington, D.C. 20301

Colonel Ronald DeepDirector, Air Force Business

Research Management CenterWright-Patterson AFB, Ohio 45433

Col. Robert L. Sims, USAFChief, Operations Research and

Economic Analysis OfficeDefense Logistics AgencyAlexandria, Virginia 22314

Mr. Peter St. JeanDavid Taylor Ship R&D CenterBethesda, Maryland 20854

4 8

4.,1" '

-oj

2815